Tauranga City Council is putting off deciding how to spend its anticipated $3.7million rates surplus until after the annual report is formerly received.

Financial controller Paul Davidson announced the surplus when presenting the draft annual report to the projects and monitoring committee on Monday.

How the surplus will be spent will be discussed in a report back to council next month. Council policy provides two options, retiring debt, or off setting against future rates.

There are options in debt reduction including paying off the $1.2 million Tauranga City Aquatics had to pay on emergency repairs to the Mount Hot Pools.

Of the $3.7 million, the majority of the $700,000 is rates revenue, additional penalties over and above what was budgeted for, says financial controller Paul Davidson.

'The other three million is savings across the organisation in interest, some employee costs savings. The biggest is probably the interest one,” says Paul.

'It is a symptom of the time. We have dropped our interest rate assumptions back in terms of this year's budget just because the fact the financial crisis is just ongoing.”

Other figures presented yesterday show operating revenue is down $2.3million partly because of lower parking fee revenue and consent fees. Development contributions are $3.2million under budget.

The city's debt to revenue ratio for the year is 244 per cent, four per cent lower than the 248 per cent budgeted for.